The market continues to power higher in the face of bad economic news and overbought technicals. I think the cause of this is a combination of things that I’ve mentioned previously. First is the Wall of Worry scenario. The second is that there are too many people short this market. It seems like there’s nobody left to sell. I think that all the sellers were flushed out before the war began. Once the war started, shorts piled on and created those war rally highs. Now what we’re seeing is those shorts being forced to buy to cover their positions. The bad economic data is just bad enough to keep some of these shorts convinced that they’re right in being bearish. So we could likely see a slow ‘melt up’ as they begin to fold over time.
I’m still not moved to initiate any long positions with the market so overbought. But there’s no reason to sell yet. As long as the current up-trend is intact, the proper thing to do is let it ride. (That up-trend line on the NASDAQ sits around 1435 right now — lots of breathing room.) I’m still expecting (hoping for!) a short term correction so I can get some entry points that I’m comfortable with.
